Help choosing Fidelity Indexes. Balanced Index?

[JP.mpls]

I'm asking these questions for my friend.
She recently retired, and rolled her Fidelity 401K account into a Fidelity IRA rollover account. She also rolled an older IRA account from a previous employer into this new IRA rollover account.

The Fidelity person who assisted in this process tried to get her to sign up with a Fidelity advisor for a fee to help with her allocation fund selections. She passed on this offer.

Her plan was to invest in a Fidelity total stock market index, and a Fidelity total bond index at the allocation of her choosing.

The Fidelity person suggested that she put it all into a balanced index to start off with. She can always change it as needed. This seems reasonable.

My questions:
- What are your thoughts regarding using a single balanced index fund, versus using a total stock market index, and a total bond market index. It seems like lower maintenance, with the index continuously rebalancing.
- I was surprised to see that the balanced index fund they put her in is a Vanguard index. This seems weird. Why wouldn't they put her into a Fidelity balanced index? Is this a problem? Will the costs be higher using a Vanguard fund inside a Fidelity account?

Thanks in advance for your comments. JP

 

[Cobra9777]

We have all our accounts at Fidelity. The portfolio is all ETFs, about half iShares and half Vanguard. These are ultra-low-cost index funds (3-5 basis points). No other fees of any kind. The Fidelity zero funds would be a nice choice as well. But for taxable accounts, I prefer ETFs for better control of taxable income. I may switch to the zero funds in our IRAs and Roth.

 

[JP.mpls]

We have all our accounts at Fidelity. The portfolio is all ETFs, about half iShares and half Vanguard. These are ultra-low-cost index funds (3-5 basis points). No other fees of any kind. The Fidelity zero funds would be a nice choice as well. But for taxable accounts, I prefer ETFs for better control of taxable income. I may switch to the zero funds in our IRAs and Roth.

Cobra,
Thanks. Isn't it strange that they didn't put her into a Fidelity zero balanced index fund? Maybe this doesn't exist.

It sounds like the Vanguard Index inside a Fidelity account is still low cost. I was concerned about that.

Note: I have most of my IRA in Fidelity total stock and total bond zero index funds.

JP

 

[OldShooter]

... Her plan was to invest in a Fidelity total stock market index, and a Fidelity total bond index at the allocation of her choosing. ...

Pretty good plan, however it minimizes Fidelity's income from her.

The only thing to argue about is whether there should be a % of International in the equity mix. I'm a believer, @pb4 will be along shortly to explain why that is a dumb idea.

I would avoid balanced funds unless the equity portion is invested in a broad index. The problem with a balanced fun is what I call the "Kool-Aid" problem. When you mix the red Kool-Aid (equity performance) with the green Kool-Aid (fixed income performance) you have no idea which contributed to the color and the flavor. Here is an example horror story: https://www.reuters.com/article/us-funds-fidelity-retirement-special-rep/special-report-fidelity-puts-6-million-savers-on-risky-path-to-retirement-idUSKBN1GH1SI

Her baseline plan is a good one. I might tune it up with some International, others would not. Buy her this book: "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is his first book. Start there. His newly-published second book is a follow-on, not a replacement.)

 

[Aerides]

The Fidelity person who assisted in this process tried to get her to sign up with a Fidelity advisor for a fee to help with her allocation fund selections. She passed on this offer.

Her plan was to invest in a Fidelity total stock market index, and a Fidelity total bond index at the allocation of her choosing.

Good for her, they can be pretty aggressive. She can't go wrong with a lazy bogle portfolio, with an AA that matches her comfort level.

 

[Ramen]

What are your thoughts regarding using a single balanced index fund, versus using a total stock market index, and a total bond market index. It seems like lower maintenance, with the index continuously rebalancing.

I love this approach and have been using it for nearly 15 years. The downside is you don't get to choose your allocation. But unless you are prepared to manage your allocation annually or so, there's no reason not to let a single fund do the work for you -- if you are comfortable with its allocation.

Fidelity does not have a balanced index fund. I think Vanguard is the only one. If your friend is allowed to have the Vanguard fund in a Fidelity account, that's a good deal. Alternatively, there is the managed (non-index) Fidelity Balanced Fund (FBALX). Its expenses are higher, but its performance over time has been better.

Vanguard Balanced Index

Fidelity Balanced

 

[38Chevy454]

FBALX is a good fund, with nominal 60/40 allocation. 0.52% fee so not a real low fee and also not a high fee fund.


Fidelity zero fee stock funds examples are:
FZROX total market index
FZIPX extended market index
FNILX large cap index
FZILX international index


There are not any Fidelity zero fee bond funds, but there are several lower fee funds. Bond funds can have different term lengths, or an a general investment grade fund like FBNDX with 0.45% fee.


Guess it depends on what allocation your friend is looking for. The all in one FBALX is a simple one fund nearly attention free way to go and saves the advisor fees on top of the fund fees.

 

[mrfeh]

Fees are higher for a balanced fund. And you can't re-balance yourself.

Two good reasons to have separate equity/FI index funds.

 

[donheff]

Pretty good plan, however it minimizes Fidelity's income from her.

The only thing to argue about is whether there should be a % of International in the equity mix. I'm a believer, @pb4 will be along shortly to explain why that is a dumb idea.

I would avoid balanced funds unless the equity portion is invested in a broad index. The problem with a balanced fun is what I call the "Kool-Aid" problem. When you mix the red Kool-Aid (equity performance) with the green Kool-Aid (fixed income performance) you have no idea which contributed to the color and the flavor. Here is an example horror story: https://www.reuters.com/article/us-funds-fidelity-retirement-special-rep/special-report-fidelity-puts-6-million-savers-on-risky-path-to-retirement-idUSKBN1GH1SI

Her baseline plan is a good one. I might tune it up with some International, others would not. Buy her this book: "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is his first book. Start there. His newly-published second book is a follow-on, not a replacement.)

That is an interesting article about Fidelity funds. I hope they are openly sharing their aggressive strategies so their clients know what they are getting into. It would be a shame going into retirement with the assumption that your 2020 target date fund was at 40/60 only to find out on a downward bump that it's 60/40.

 

[OldShooter]

That is an interesting article about Fidelity funds. I hope they are openly sharing their aggressive strategies so their clients know what they are getting into. It would be a shame going into retirement with the assumption that your 2020 target date fund was at 40/60 only to find out on a downward bump that it's 60/40.

Well, the gist of the article was that all the jazzing of the equity tranche was done in secret. I am not a fan of blended funds simply due to the Kool-Aid problem, but for someone who insists I think the only sensible choice is a fund whose equity tranche is broadly indexed. Then the fund advisor can't mess up your investment.

 

[Markola]

The Fidelity person suggested that she put it all into a balanced index to start off with. She can always change it as needed.

See, your last sentence is the Achilles Heel in this plan, as Fidelity fulfilled her wish sensibly to get her money in the door. Now that they have her, the corporation now has every incentive to ensure that she is informed regularly that “change is needed” into their higher expense advice and funds. Somehow, they put her in a Vanguard balanced fund rather than their own Fidelity index funds, so your friend won that round. The latter are clearly loss-leaders to hook people into Fidelity, so they can be marketed to.

I once had six figures at Schwab, where I bought only Vanguard index funds. I got tired of their marketing and even a call one day out of the blue telling me “You can do better.” I decided they were correct - and moved all my money to Vanguard, where my values are in full alignment and where I’ve never been marketed to since.

 

[mrfeh]

See, your last sentence is the Achilles Heel in this plan, as Fidelity fulfilled her wish sensibly to get her money in the door. Now that they have her, the corporation now has every incentive to ensure that she is informed regularly that “change is needed” into their higher expense advice and funds. Somehow, they put her in a Vanguard balanced fund rather than their own Fidelity index funds, so your friend won that round. The latter are clearly loss-leaders to hook people into Fidelity, so they can be marketed to.

I once had six figures at Schwab, where I bought only Vanguard index funds. I got tired of their marketing and even a call one day out of the blue telling me “You can do better.” I decided they were correct - and moved all my money to Vanguard, where my values are in full alignment and where I’ve never been marketed to since.

I've been a Fido customer for 8 years now; 90% of our holdings are with them. I've never been marketed to or received a sales pitch.

Even if they did, I'm perfectly capable of saying "no thanks". I'll take the superior customer service and web site (compared to Vanguard).

 

[OldShooter]

... I once had six figures at Schwab, where I bought only Vanguard index funds. I got tired of their marketing and even a call one day out of the blue telling me “You can do better.” I decided they were correct - and moved all my money to Vanguard, where my values are in full alignment and where I’ve never been marketed to since.

Just to add to the picture, we've been at Schwab for maybe 20 years, starting with a high 6-figure balance and now seriously into 7 figures. We've never received a sales call or been given a sales pitch.

The closest thing, and actually a good thing, was a call I received one day from a Schwab guy who had been given the info that my $100K robo-visor experiment account was 95% in equities, possibly inappriate for my age. I explained that it was an experimental account and just a small portion of our total assets and that was the end of the concern. I thanked him for the call.

 

[Cobra9777]

I've been a Fido customer for 8 years now; 90% of our holdings are with them. I've never been marketed to or received a sales pitch.

Even if they did, I'm perfectly capable of saying "no thanks". I'll take the superior customer service and web site (compared to Vanguard).

+1

We've been with Fidelity more than 25 years. No one has ever tried to sell me anything. Fidelity's online tools and services are a perfect match for my DIY style of investing and financial planning.

 

[RobbieB]

I like to keep my equities and my bonds separate.

 

[friar1610]

I needed a one-fund solution for 2 relatively small Roth IRAs that my wife and I have been funding with conversions from our t-IRAs.

- What I really want to do is leave them (one account each) to my 2 kids whose tax brackets are higher than ours is now. Hence, I wanted a fund that had a reasonable equity allocation for future growth so they’ll get a nice sum that they can grow further for 10 years if they choose to do so.

- what I need to be able to do is ensure that my wife can access them for living expenses after I’m gone if she needs the money. (The kids lose out in this case). In particular, I’d like her to have a source of tax-free funds (in a single, easy-to-manage fund) that are not-too-hot/not-too-cold risk-wise, that she doesn’t have to withdraw from but can if necessary.

After considering a number of funds (Wellington, Wellesley and several of the Life Strategy funds, in particular), I came to the conclusion that Vanguard Balanced Index was the best choice - not perfect but, to me, the best of the available options for this situation. YMMV.